RetireJapan

Bubblegun wrote: ↑Sat Oct 09, 2021 9:52 am A company that doesn’t pay any dividends, but then says we’ll buy back our own shares, which then push the prices higher. Or similar to Trumps policy, massive tax breaks to certain companies, who then decided to to…… buy their own shares back, when in reality, nothing fundamentally changed. No extra profits, no new products, or new investments. But still the stocks rose.

In theory, stock buybacks should result in the price of the stock rising. Buybacks reduce the number of shares, so the remaining shares own more of the company, and get more dividends (if dividends are paid). In an ideal world the company is buying its own stock when it thinks it is cheap, making it a good deal for stockholders.

Of course in practice it doesn't always work like that, but buybacks are a tax-efficient way for companies to return value to their shareholders.

RetireJapan wrote: ↑Sat Oct 09, 2021 11:42 am

Bubblegun wrote: ↑Sat Oct 09, 2021 9:52 am A company that doesn’t pay any dividends, but then says we’ll buy back our own shares, which then push the prices higher. Or similar to Trumps policy, massive tax breaks to certain companies, who then decided to to…… buy their own shares back, when in reality, nothing fundamentally changed. No extra profits, no new products, or new investments. But still the stocks rose.

In theory, stock buybacks should result in the price of the stock rising. Buybacks reduce the number of shares, so the remaining shares own more of the company, and get more dividends (if dividends are paid). In an ideal world the company is buying its own stock when it thinks it is cheap, making it a good deal for stockholders.

Of course in practice it doesn't always work like that, but buybacks are a tax-efficient way for companies to return value to their shareholders.

Exactly, but isn’t it just legal financial manipulation?

Similar to how OPEC reduces the oil it produces, or Russia cutting gas supplies, causing an artificial shortage .
After all the companies buy back the shares, but the company is supposed to be us, so couldn’t we see this is a pump and dump approach too.

Eg, Facebook et al buy back millions of shares, the price shoots up, everyone is happy. But then Facebook could Sell them because of the higher prices, (oh we made a ton of money) then the price gradually falls, then rinse and repeat every few years.
Maybe I’m over simplifying it but sometimes it does look like a legal pyramid/ponzi scheme.
Facebook 20 billion in profit and no dividends, just the promise of more money coming in.
Surely there has to come a point where institutions are going to say, we need a dividend. And if it is so good, why aren’t ALL the other companies doing it, and also why do we, (even here), talk about the power of compound interest over the long term if buy back schemes are good.
If the company is sound, increasing profits, it should share its profits and should t need to manipulate the share price. But it’s a great way for the ceo to make a ton of personal profits.
An interesting read about buy backs and reasons and it’s impact. McDonalds is an excellent point.
Facebooks user base is falling. Young people see it as old and rather stuffy, massive profits though.


https://corpgov.law.harvard.edu/2019/10 ... investors/

https://www.google.com/amp/s/www.fool.c ... -dividend/

Any thoughts?

From one of your linked articles:

It is useful to observe specific examples in which corporations have high joint levels of buybacks and insider sales.

Exxon Mobil: In Q2 of 2008, Exxon Mobil insiders collectively sold $42 million in personal shares, at the same time the company spent $8.4 billion on stock Insiders purchased zero shares themselves.

IBM: In Q2 of 2007, IBM insiders collected $21.5 million from selling off their personal shares while the company spent $14.6 billion on stock buybacks. Again, insiders elected not to purchase any shares themselves.

Microsoft: In Q4 of 2005, Microsoft insiders sold $49.5 million in personal shares and purchased zero shares. At the same time the company spent $7.7 billion on stock buybacks.

Gilead Sciences: In Q1 of 2016, insiders at Gilead Sciences earned $37.4 million from selling off their personal shares. The same insiders purchased no shares themselves while the firm spent $7.4 billion on stock buybacks.

What jumps out at me is that those four companies, held up here as examples of what is wrong with stock buybacks, all pay good dividends.

How about that.

Secondarily, the amounts that insiders have sold seems insignificant when (a) considering the billions used for buybacks, and (b) the failure of the article to point out anything about levels of insider ownership. The biggest there is microsoft, worth about $2T (two trillion)--so really, how connected to that valuation is a $7.7B buyback?

Third, stock awards (which eventually vest and can be sold) are probably classed as insider selling, when the reality is that that stock is a form of compensation, and I think it is normal for some (most?) of that stock to eventually be sold. And given the US tax system (rates on gains vs income), paying people with stock is a no-brainer. So when it is pointed out, above, that insiders are not purchasing shares..., uh, give me a break: 'Insiders' that get stock awards don't need to purchase shares.

Bubblegun wrote: ↑Sat Oct 09, 2021 9:52 am

captainspoke wrote: ↑Sat Oct 09, 2021 3:57 am I don't think I've read any dave ramsey, but from the comments here I'd guess that this motley fool article says about the same thing: (perhaps a different twist on how the data is crunched/presented)

https://www.fool.com/investing/2020/11/ ... you-money/

Another thing worth noting is that stock ownership is pretty skewed, with the top 1% (to grab a number) owning the most--and I'm not going to dig up numbers, but I think that 1% actually owns a very very large majority of all shares. And after this group, there are institutional investors, such as pension funds, insurance companies, even foreigners and foreign governments, and so on.

Those folks/institutions aren't going to be selling soon. So to paraphrase it, the idea that "all these older people (aging US baby boomers) are now going to be retiring and selling their shares" and so the overall market (share prices) will go down--this is inaccurate (IMO). The cohort of retirees (how much stock they own) is dwarfed by those other things.

I agree that the idea that the baby boomers or an older population will cause the markets to go down as other countries get richer and push their populations to invest in the stock markets too. Especially with the opt in as the default.(nudge theory)
But things are skewed. ...

Maybe there was a typo or something, but my point/belief/thesis is that stock sales by retiring boomers will not cause markets to go down.

That money will not just go to cash and sit in a bank, it will get spent. Which should stimulate the economy, support growth, and probably make companies prosper. Much better to have that happen than to leave money cached away untouched.

captainspoke wrote: ↑Sun Oct 10, 2021 4:06 am

Bubblegun wrote: ↑Sat Oct 09, 2021 9:52 am

captainspoke wrote: ↑Sat Oct 09, 2021 3:57 am I don't think I've read any dave ramsey, but from the comments here I'd guess that this motley fool article says about the same thing: (perhaps a different twist on how the data is crunched/presented)

https://www.fool.com/investing/2020/11/ ... you-money/

Another thing worth noting is that stock ownership is pretty skewed, with the top 1% (to grab a number) owning the most--and I'm not going to dig up numbers, but I think that 1% actually owns a very very large majority of all shares. And after this group, there are institutional investors, such as pension funds, insurance companies, even foreigners and foreign governments, and so on.

Those folks/institutions aren't going to be selling soon. So to paraphrase it, the idea that "all these older people (aging US baby boomers) are now going to be retiring and selling their shares" and so the overall market (share prices) will go down--this is inaccurate (IMO). The cohort of retirees (how much stock they own) is dwarfed by those other things.

I agree that the idea that the baby boomers or an older population will cause the markets to go down as other countries get richer and push their populations to invest in the stock markets too. Especially with the opt in as the default.(nudge theory)
But things are skewed. ...

Maybe there was a typo or something, but my point/belief/thesis is that stock sales by retiring boomers will not cause markets to go down.

That money will not just go to cash and sit in a bank, it will get spent. Which should stimulate the economy, support growth, and probably make companies prosper. Much better to have that happen than to leave money cached away untouched.

Well spotted . That was indeed a typo. I meant to say the retiring boomers will cause a crash is pretty far fetched.

The four companies mentioned above have indeed done buy backs AND paid a dividend.
It’s the other big companies who never paid dividends, but roll in billions in profit. Google, Facebook, Amazon are not startups. They’re mature companies, and I think we should be getting dividends
I can understand Boeing not paying a dividend due to the recent issues that company has had, but the googles of the world could and should pay a dividend. Heck they could buy back it’s own shares and pay a dividend.
But going back it certainly appears to have elements of a pyramid /ponzi scheme. It relies on more people coming in at the bottom, and then the company reducing the availability of shares.

Bubblegun wrote: ↑Mon Oct 11, 2021 4:20 am The four companies mentioned above have indeed done buy backs AND paid a dividend.
It’s the other big companies who never paid dividends, but roll in billions in profit. Google, Facebook, Amazon are not startups. They’re mature companies, and I think we should be getting dividends
I can understand Boeing not paying a dividend due to the recent issues that company has had, but the googles of the world could and should pay a dividend. Heck they could buy back it’s own shares and pay a dividend.
But going back it certainly appears to have elements of a pyramid /ponzi scheme. It relies on more people coming in at the bottom, and then the company reducing the availability of shares.

Consider that one of the companies that effectively has never paid a dividend is Warren Buffett's Berkshire Hathaway (they actually did pay a dividend one time many many years ago and Buffett jokes that he was out of the room when the decision was made) and the reason in largely tax efficiency and the ability to better invest funds internally. I would not consider BRKA/B in any way a Ponzi scheme (there is no sense in which new investors' money is being used to pay a dividend or otherwise pay off old investors) or in some other sense dodgy or at risk of collapse. From a perspective of financial analysis a dividend is equivalent to a stock buyback but the buyback has the advantage of not requiring shareholders to pay an immediate tax. Buffett has in recent years done some stock buybacks of Berkshire stock but historically that is not the main way he has used shareholders' capital; it has instead been used to grow the business.

I would put forth that you're thinking too small. The real pyramid scheme esque sham that is waiting for its day of reckoning is the bedrock of the entire economy itself: consumer spending. 70% of the US economy is based on consumer spending. Household debt levels are almost 80% of GDP. Ergo, the consumer spending that is driving the economy, and propping up the stock market, is almost entirely based on people spending money they don't actually have.

And what does the government do if the stock market falls too much? Quantitative easing... i.e. buy stocks with taxpayer money, for the sole purpose of propping up the (already artificially high) stock market. Why do they do this? To reinvigorate consumer sentiment and get people willinng to spend more more more. Now there's a sham if there ever was one. And do you think the performance of the Japanese stock market reflects the economy? No... the Japanese government has been one of the biggest buyers in the Japanese stock market, propping up demand artificially for several years now... there's real market manipulation for you.

Stock buybacks? Small potatoes. And besides, I welcome them. They are the equivalent to dividend payments, as the money goes to the shareholders, but better as they are not taxed.

mighty58 wrote: ↑Tue Oct 12, 2021 2:20 pm I would put forth that you're thinking too small. The real pyramid scheme esque sham that is waiting for its day of reckoning is the bedrock of the entire economy itself: consumer spending. 70% of the US economy is based on consumer spending. Household debt levels are almost 80% of GDP. Ergo, the consumer spending that is driving the economy, and propping up the stock market, is almost entirely based on people spending money they don't actually have.

And what does the government do if the stock market falls too much? Quantitative easing... i.e. buy stocks with taxpayer money, for the sole purpose of propping up the (already artificially high) stock market. Why do they do this? To reinvigorate consumer sentiment and get people willinng to spend more more more. Now there's a sham if there ever was one. And do you think the performance of the Japanese stock market reflects the economy? No... the Japanese government has been one of the biggest buyers in the Japanese stock market, propping up demand artificially for several years now... there's real market manipulation for you.

Stock buybacks? Small potatoes. And besides, I welcome them. They are the equivalent to dividend payments, as the money goes to the shareholders, but better as they are not taxed.

Well that’s certainly been something I’ve thought of.
As a developed nation we change to a consumer economy, which must rely on a growing population but I suppose we know how that demographic pyramid is going and it must rely on a growing population, otherwise as they always keep saying it will cause huge problems for the economy, hence immigration is required, to prop up housing markets, house prices, etc etc.

It would seem the economy is actually built more on debt, but that’s not sustainable. We can’t save for a house because we have college debt, blah blah blah.
College debt,
House debt
CC debt.
Car debt.

Then we have to pay forward into
Pensions,
IDECO
NISA
Again reducing our capacity for young couples to get into a house to start a family. Notice I didn’t say housing ladder as it shouldn’t really be a ladder. Houses should be for living and not profits.
But I digress.



Ok so buy backs are not taxed. Excellent point.
But hang on, I’m in a NISA, that buys all these shares anyway, and an IDECO….. and aren’t they tax efficient and we don’t pay any tax on the profits, they don’t pay any tax? So even if they pay us a dividend…. It’s not taxed anyway.